A quiet start

Monday felt like a day when asset prices were happy to take a breather after the fireworks of last week. From a earnings point of view, two of world's leading technology brands reported very different stories. The S&P 500 shrugged of the disappointment of an earnings miss from IBM as later in the day Apple reported a figure above analyst expectations. The share prices endured very different days as IBM fell over 7% and Apple managed a 3% rise taking it back over the $100 mark.

A lot of the weekend press was understandably dominated by the events of the past week, recognising some of the understandable reaction from capital markets to the recent data. Despite the many uncertainties, overall the consensus view appeared to come to the conclusion that it may be a little early for equity investors to run for the hills. As we said in our week ahead, big equity market sell offs don't tend to come when governments are very focussed on stimulating economic growth.

Many investors were looking for the 10% correction in the S&P 500, and may now breath a sigh of relief at its arrival. By the close on Monday the US dollar continued to drift lower and the Vix fell back below 20. The recovery in the Russell 2000 index of small cap stocks towards the end of the last week, which appeared to put the brakes on last week's fall, continued rising another 1% today. High yield bonds also had a better day.

Tuesday will be dominated by the latest GDP report from China, industrial production is expected to rise 7.5% year on year for the month of August. Third quarter estimates for GDP are expected to be 7.2%, slightly below the 7.5% reported in the last quarter.

It's always hard to tell if we reached the point of capitulation last week and if we have started the period of consolidation ahead of the anticipated end of year rally. At least for Monday, the encouraging signs at the end of last week carried on into the start of this one.